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There's a Glimpse of Blue Sky on the Economic Horizon

NEW YORK (AdAge.com) -- A recovery -- a tepid one, mind you -- seems to be in the offing. From Google to the Gap, from Wall Street to the ad-buying trenches, there's an almost tangible hope that the advertising and media sectors are no longer treading water, but crawling gingerly onto muddy shores. The question is whether that glimmer of optimism is enough to spark a real movement toward solid ground.

The optimism was fueled by the Dow Jones Industrial Average flirting with the psychologically important 10,000 mark last week; a pronouncement by Google CEO Eric Schmidt in announcing a 27% third-quarter profit that "we believe the worst of the recession is behind us;" and a Gap investor briefing in which executives, professing that the economy is stabilizing, said the retailer will hike marketing spending by $25 million in the third quarter and $45 million in the fourth.

Now, today comes a report from ZenithOptimedia that global ad spending should increase 0.5% in 2010. Meager, yes, but after so much sputtering of ad spending and cost cutting at media companies, that tiny blip is being taken as cause for relief.

But don't be too relieved: That 0.5% is actually down from last July's forecast when ZenithOptimedia projected ad-spending growth of 1.6% next year. And it has revised downwards its forecast for '09 spending to fall 9.9% rather than 8.5%, so conditions at best remain fragile.

"I'm sure there will be some more bumps in the road," said Tim Jones, CEO of ZenithOptimedia North America, but "I wouldn't say we're walking on ice."

'Scatter' booming
Meanwhile, ad buyers are reporting that TV "scatter" advertising, or ad inventory bought close to air time, is more robust. "Broadcast/cable scatter rates are up mid-to-high singles [digits] vs. the upfront, and business is being written as few as two days before air date, which we expect to continue for at least the rest of the year," wrote Wells Fargo media analyst John Janedis. "We think some of the high- demand cable nets are sold out for the month of October."

While those are encouraging signals, Mike Helmar, director-industry services for Moody's Economy.com, warned it could be a false start. He said recent stimulus programs such as "Cash for Clunkers" or tax credits for housing actually "brought some demand [from consumers] forward," meaning some spending that might have taken place in weeks to come has already been absorbed, so "it's going to stall things out." Even so, Mr. Helmar said, marketers seem to be at the start of a year-long trek forward. "There will be some real jumps from now. The advertising industry will really be doing quite well," he said. For now, however, "the recovery is a little bit tenuous. ...The consumer is like, 'Show me the money.'"

Moreover, there's a palpable sense that things could come crashing down anew. Some analysts believe the stock market has gotten ahead of itself and that many seemingly robust earnings from companies are largely the result of comparisons to worse earlier quarters or cost-cutting rather than from business flowing strongly once again.

So while no one is ready to hold a party, there's a growing sense that ad spending is haltingly stabilizing -- or at least sucking less than before. According to ZenithOptimedia, spending on major media in the U.S. will fall 4.4% in 2010, about a third of what it dropped in 2008 (12.9%). Spending ought to increase a marginal 0.7% in 2011. In a mid-October forecast, Interpublic Group's Magna revised a recent prediction that normalized ad revenues (excluding local TV political and national TV Olympic revenues) would decline 2.1% in 2010 and now suggests a fall of only 1.3% instead. Total revenue should reach $159 billion in 2010, compared with $161 billion in 2009 and $188.7 billion in 2008, Magna said.

Cautious optimism comes from marketers having gotten their costs aligned with the downturn, said ZenithOptimedia's Mr. Jones, and having readied plans to woo consumers who have a decidedly different mindset than they did 18 months ago. While automakers, financial-services firms and some retail sectors remain challenged, he foresees decent to robust spending by restaurants and telecommunications marketers.

Still waiting
Other media-buying executives, however, still see churn in the marketplace. "We're in a time when we don't think there's much further depression coming, but we don't feel any big turnaround has happened," said Alan Cohen, U.S. CEO at Omnicom Group's OMD. "No one's thinking that anything is really happening other than stabilization of a very tough depressed time."

VERY MILD: Media spending forecasts.

These executives also warn against reading too much into the stock market's stunning rise over the last several weeks. "If you look at the stock market, everyone's getting frothy about that -- but [that 10,000 hallmark] was reached 10 years ago. What you're not seeing is consumer spending come back like that." said Martin Cass, U.S. president, Carat. "I don't see any particularly significant consumer recovery at the moment. In fact, every indication at the moment would tell you there isn't one. We are certainly past the worst of it, but don't pop the champagne cork just yet."

Any turnaround is likely to be uneven, with some media sectors feeling wind at their back and others continuing to see sinking dynamics. The world's largest media owners "suffered an average 13.1% drop in their media revenues in the first six months of the year, and this probably understates the decline suffered by the industry as a whole," said ZenithOptimedia's forecast. The internet is the only medium expected to show growth in 2009, up 9.2%, while newspaper and magazine spending will fall 17% and 20%, respectively. While print spending will decline through 2011, ZenithOptimedia expects TV, cinema and outdoor to return to growth in 2010, followed by radio in 2011.

Marketers can't hold back ad spending forever, or they run the risk of hurting their operations. Household and personal care sales fell 0.4% in the four weeks ended Oct. 4, according to Nielsen data from Sanford C. Bernstein, while private-label sales in those categories surged 8.5%, bringing private-label shares in the sector to a record-high 14.6%, up 1.2 points from a year ago.

Several factors do point to an uptick in U.S. marketing spending by the household and personal care players late this year and into early next year. The biggest player, Procter & Gamble Co., had an estimated $2 billion in savings from lower commodity costs and added earnings flexibility from reduced forecasts, much of which is expected to be spent at the beginning of calendar 2010. The recent plunge in the dollar, reversing a sharp runoff a year ago, gives P&G and other U.S.-based package-goods players additional earnings wiggle room to spend more aggressively on marketing everywhere, including the U.S. The strengthening of the dollar last year was among factors that cut into industry marketing spending.

But just as these stronger signals might act as a psychological lift and make an upturn a self-fulfilling prophesy for marketers, consumer psychology has also fundamentally shifted during the downturn, and it may well be for good.

"The mindset of the consumer has been changed for quite some time, and I believe that impact will be felt long after the economy regains its full strength. As a result, we are being extremely cautious and prudent with our ad budget," said Jeffrey Hennion, exec VP-chief marketing officer, Dick's Sporting Goods. "We learned quite a bit this year as we reduced our ad budget, and, while we will spend more in 2010 than we did in 2009, there is no reason for us to immediately put everything back in place that we had prior to the economic environment becoming so challenged."